Small-business owners in this historic Shenandoah Valley community have had to tighten their belts a notch or two during the past year's inflation-recession crunch, but generally speaking they're holding their own.
So are merchants and factory owners to the north, in Hagerstown, Md., still recovering from the impact of last summer's layoffs at the local Mack truck plant; and to the south, in Fredericksburg, Va., and eastward, in Annapolis.
That's the picture throughout metropolitan Washington's outer environs, the smaller cities and towns in a 25-to-75-mile radius from the capital -- close enough to be linked to Washington's economy, yet a world away in thinking and outlook.
Although perimeter-area business owners, like others, have suffered from sluggish sales, mounting business costs, high interest rates and crimped cash flow in the past year and a half, most have adjusted without serious damage.
Moreover, while there still are some visible problems, business owners are turning increasingly bullish, in part because of a spring pickup in sales volume and partly out of unabashed excitement over the new Reagan administration.
These are the impressions from talks with dozens of small-business owners, civic leaders and analysts in recent days, both in the Winchester area in the perimeter region's three other largest cities:
Although the region didn't fully escape the 1979-80 inflation-recession squeeze, Washington's perimeter-area communities generally have fared better than most small cities. Business isn't great, but it isn't terrible, either.
For all last year's fears about the impact of crippling interest rates, most area businesses have learned to cope, though many have had to trim inventories and cut overhead. Cash flow is tight, but few firms are in danger.
Despite renewed forecasts that the nation may be headed for another slump this year, perimeter-area businessmen are generally optimistic about the economy. Most are predicting at least some slight improvement in 1981.
The region is far more diversified than it was even a decade or two ago and, therefore, in better shape to rebound. Even Hagerstown, the only city with a major layoff, has plenty of light manufacturing to keep it going.
The area's small-business owners are bursting with enthusiasm over President Reagan's new economic proposals, even though his tax plan would aid primarily heavy industry and his cutbacks could hurt federal workers here.
"Sure it's gong to put a squeeze on us," says Susan Nelson, a Fredericksburg clothing-store owner, in a comment typical of many heard recently, "but it'll be helpful in the long run" to bring interest rates down.
Echoes a Hagerstown equipment dealer, who asked not to be identified: "Some of our business has to do with the board of education and county government, but the cuts have to start somewhere."
Finally -- contrary to conventional wisdom -- there are few serious complaints about the burdens of government regulation. If anything, business owners say, "harassment" from federal safety inspectors has abated in recent years.
The situation in this region generally has paralleled the national picture: Consumers, panicked by soaring prices, went on a virtual spree in 1978 and 1979, finally retrenching in early 1980. Housing and auto markets abruptly collapsed.
Having weathered the past year's chill, business owners here are greeting the spring with more optimism than they've had in months. Although Washington's economists are predicting another slump, it's not shared beyond the Beltway.
If anything, many area manufacturers and retailers believe they saw a business pickup in March: Auto dealers, powered by Detroit's March rebate programs, say they're continuing to recover from their sales slump. Even some real estate is starting to move.
"It depends what business you're in," says Al Miller, president of the South Anne Arundel Businessmen's Association. "Most are holding steady, not gaining. Cash flows are getting tight. But others are going great guns."
Here, in a nutshell, is a run-down of the current situation in the four perimeter cities:
HAGERSTOWN: Still recovering from last summer's 1,200-worker layoffs at the giant Mack truck plant, Hagerstown is slowly clambering back on its feet though not without some hitches.
The local area's jobless rate now is a troublesome 12.2 percent, up from 9.1 percent a year ago, and many of the Mack workers laid off last year are running out of jobless benefits and company-paid supplemental unemployment pay. r
However, as locals are quick to point out, the economy is far more diversified than it was, say, in 1958, when a similar layoff laid the community flat. And the City's Fairchild aircraft plant is operating at full tilt.
David Foltz, analyst for the Maryland Employment Service office, sees "a slowing of the deterioration" in the local economy. "We're in a holding pattern now," he says. "My impression is that we're pulling out."
ANNAPOLIS: Bolstered by a heavily upper-income population with a high proportion of federal employes, the Annapolis area has survived the recent inflation-recession crunch in relatively good shape -- at least by most accounts.
Although the latest figures show the jobless rate edged up, it still was only 6.2 percent in January -- well below the national 7 1/2 percent -- and retail sales have remained bouyant all winter.
"Small business in Annapolis is unique," says James Hollan, president of the 150-member Annapolis Business Coalition, referring to the city's built-in market of well-heeled federal retirees and tourists. "We can bitch, but the fact is that we're doing very well." Tourism here has held up well.
The major trouble spots locally have been in interest-sensitive businesses such as housing, auto sales and sales of smaller boats. But the real estate market has begun to pick up. And sales volume generally is ahead of last year.
Pat Arnold, analyst for the Maryland Employment Service, says job orders have begun to increase, an early sign of further improvement. "But basically," he says, "our economy hasn't been that bad." Most local business people agree.
WINCHESTER: Winchester's surprisingly diversified light manufacturing has kept the economy muddling through, though lackluster. The jobless rate here is 8 percent, but that's down from last year. And layoffs have been temporary.
Business owners report most retail operations are inching along at last year's levels. Tourism is climbing out of the slump it experienced during the 1979-80 gasoline crunch. And prospects for local apple growers seem good.
Just the same, bankers and businessmen agree the job market here still is tight, and there's no real indication yet of a major upturn. Says Gene Schultze, analyst for the Virginia Employment Commission: "We're hoping for a break."
FREDERICKSBURG: If the economy has just gone through a crunch, someone apparently forgot to tell Fredericksburg about it. Oh, sure, real estate sales have have been sluggish, and auto sales have been flat. sBut not really that bad.
Rather, analysts say business conditions here are virtually "normal" -- not quite the mini-boom the area experienced in 1978, but nowhere near as sluggish as in other communities.
Right now, the downtown area still is undergoing a revival. The city is continuing to attract new industry. And the prospect of playing host to this year's national Boy Scout Jamboree is keeping some retailers' hopes high.
Alice Blain, statistician with the Virginia Employment Commission office here, lists the latest local unemployment rate at 6.7 percent. But the gleam could be tarnished if the federal work force is cut sharply, analysts say.
To many analysts, perhaps the most remarkable development over the past few months is that, with a few exceptions, area business owners have learned to live with chronically high interest rates far better than they thought they would.
When interest rates began to soar in early 1980, small-business owners were warning loudly they could not survive in the face of these sharply increased costs. With sales weak, there were widespread forecasts of new shutdowns.
But as the past several months have proved, although a few operations have closed down -- mostly those than already were shaky -- small firms can survive, provided interest rates remain steady and can be figured into planning.
But the adjustment has come at a price: Most business owners have had to cut inventories and squeeze other purchases, defer long-awaited expansion projects and crack down on their own late-paying customers.
"As long as sales don't slump too far, high interest rates are livable," says the Annapolis Business Coalition's James Hollan, himself a specialty-shop owner. "But they really do keep us from expanding."
James Resh, a Hagerstown restaurant owner, has put off plans to build a second facility and won't even consider reviving the plans "until interest rates get back down to 12 or 14 percent."
And Michael Vaillancourt, a Fredericksburg printing plant owner, has had to pass up an 18-month-old option to buy the plant facility he's renting. Instead, he says, "we'll probably have to go to a long-term lease."
To be sure, not all businesses have been stymied by high rates. The run-up in borrowing costs "doesn't bother me too much," says Earl Clowser, a Winchester hardware-store owner. "I just fuss a lot," he quips.
And Robert F. Zeigler, a Hagertown industrial contractor, has "moved ahead carefully" by keeping an eye out for bargains: "We borrow anywhere we can -- industrial revenue bonds, insurance policies on personnel," he says.
But the crimp in cash flow hasn't stemmed from high interest rates alone. In some industries, sales volume has slumped. And customers have begun to fall behind in their bill-paying, squeezing small businesses even further.
Ida Beck, a Fredericksburg furniture dealer, laments that the reduced cash flow prevents her from taking advantage of the 1 percent discounts that business traditionally receive for prompt payment of their own bills.
And Fred Noland, a Hagerstown auto-repair shop owner, complains that partsmakers have halved the 40 percent markups they used to allow in computing their suggested list prices. As a result, he says, "we're boxed in even more."
Business owners' responses in most cases have been to hold borrowing to operating essentials and to try to keep overhead costs down.
One obvious way is to trim inventories. Mike Mulleni, a Hagerstown piano- and organ-store manager, says he's pared stocks on some items by as much as 40 percent, although he still displays a full line of pianos.
And Earl Clowser, the Winchester hardware-store owner, has begun cracking down on his own late-paying customers. For the first time, he's begun imposing a 1 1/2-percent-a-month delinquency charge -- "just like the big companies do."
For still others, like Fredericksburg clothier Thomas Rattican, the squeeze has meant operating with fewer personnel and working longer hours themselves, to help trim overhead costs. Rattican was able to cut his staff by attrition.
Generally speaking, these cost-saving efforts have been successful. But, as usual, the bottom line for most businesses has been the volume of new orders and sales.
Here, the reports vary almost as widely as the individual businesses. Al Summers, an appliance store owner in Hagerstown's struggle downtown, declares flatly that sales volume is "lousy." He already has closed two other stores.
But Susan Nelson, the Fredericksburg clothing-store owner, says she "hasn't been hit that hard" by the past year's ups and downs. And Joyce Lowman, an Edgewater, Md., appliance dealer, says sales are slow but repairs are up.
Business owners also report the crunch has altered consumer attitudes. Most agree with Mitzi Noble, the Winchester travel agent, that going through the economic wringer has made buyers more value-conscious.
Says James Hollan, the Annapolis specialty-shop owner: "The low end of the line is selling, and the high end of the line is selling. They're more concerned about durability. Classics are very big."
As proof, Fredericksburg's Ida Beck has brought in a better line of furniture to bolster once-sluggish sales. "Upgraded quality sells better," she says, "People are looking for better values, longer warranties."
Nevertheless, there's a good bit of optimism pervading the area's business community, with many reporting visible sales pickups in the past 1 1/2 months and predicting further improvement in spring and early summer.
Clearly one major factor is the business owners' own outspoken enthusiasm over the Reagan administration -- an optimism that many believe is infecting not only their own attitudes but their customers' as well.
Almost to the last one, small-business owners in the area -- even the longtime Democrats -- are unabashedly convinced Reagan's new approach will be good for the economy, and they believe consumers are turning more optimistic in response.
Rick Thumma, a Hagerstown auto dealer, says he's noticed a definite pickup in consumer sentiment in recent months, and "a lot of it has do with Reagan. It's all positive -- a very, very positive approach."
"Yes, I'm encouraged -- and that's coming from a Democrat," says Mitzi Noble, a Winchester travel agent, in one of the many plaudits the president received in the interviews over the past two weeks.
As is the case with most Americans, the part of Reagan's economic plan local business owners like the most is his effort to reduce the federal budget deficit, even if that means it could hurt their own sales.
"I'm sorry that some of the social programs are being cut, but it's the only way," says Linda Worrell, a Fredericksburg developer. Agrees Warren Teates, a Winchester motel operator: "Absolutely the correct thing to do."
Ironically, the support is almost as strong for the president's business tax-cut program, even though its centerpiece -- the proposal for faster depreciation write-offs -- will help primarily heavy industry.
Most seem to agree with Hagerstown Chamber of Commerce Director John E. Ritchey that, although the faster depreciation "won't do much directly" for small business, "there will be spinoffs -- right down the pipeline."
Indeed, Fred Noland, the Hagerstown auto-repair shop owner, believes heavy industry will have to be revived before smaller business can prosper. "It's probably not going to do the little man any good until then," he says.
For others, the big-business/small business issue simply isn't that important. "I'd rather have had a cut in the corporate tax rate," says Jim Resh, the Hagerstown restaurateur. "But better this than nothing at all."
Surprisingly, complaints about government regulation, particularly from the once-vilified Occupational Safety and Health Administration, aren't nearly as rampant as some would suggest.
"It was bad a few years ago," says Hagerstown auto-repair shop owner Noland, "but the government got 'em to stop harrassing us." Agrees Michael Vaillancourt, the Fredericksburg printing-plant owner: "It hasn't been much of a factor."
Still, some small-business owners do feel frustrated by other government requirements, particularly the rising cost of workman's compensation, which they say increases labor costs substantially.
Despite the recent crunch, businesses generally have come through in reasonable shape financially. Bankers say local balance sheets, while crimped, aren't any cause for serious concern, either for business or individuals.
Delinquency rates on loan payments have edged up somewhat in recent months, but bankers say they haven't yet reached a critical stage. Most only represent brief delays. Longer postponements or actual defaults still are rarities.
And most institutions report loan demand still is slack, both for commercial and personal loans. Says Wilbur Feltner, a Winchester banker: "Everybody has pulled in their horns."
Some lenders, however, have noticed a pickup, particularly in the volume of new-car financing since automakers announced their rebate programs. Says Francis Greene, an Annapolis banker: "It's starting to perk up."
Is an upturn really in the making? The up." prognosis varies according to the business and the place, but generally the area's business owners are at least cautiously optimistic and reject any notion of a coming recession.
"I'm mildly optimistic that things are going to improve," says Robert F. Zeigler, the Hagerstown industrial contractor. The business climate already has improved markedly, Zeigler says. He forecasts an upturn by late 1981.
Thomas Rattican, the Fredericksburg clothier, agrees that the first half of the year is apt to be "kind of soft" but says he "bought with the expectation that the rest of the year is going to pick up. If not, I'm going to be stuck."
And housing and auto sales, both major influences on all sorts of local businesses, from retail stores to service vendors, are beginning to show signs of some revival.
Hagerstown Chevrolte dealer Charles W. Huffman credits the automakers' month-long rebate program with paring his inventories to 24 cars from 100 before the discounts began, and he sayd he's still drawing customers.
And neighboring Volkswagen-AMC dealer Ralph Sharrett boasts that volume has picked up so markedly he just missed winning a trip to Las Vegas in one regional dealers' contest and is "in first place" in another for a vacation in Bermuda.
The revival in real estate is decidedly less spectacular and less pervasive, as well. Agents report existing homes, particularly those middle- or higher-priced, are selling reasonably well, but new construction still is halted.
Nevertheless, John Scully IV, president of Winchester's board of Realtors, says consumer demand still is strong and that the next dip in interest rates should bring buyers out in droves again.
A growing number is beginning to agree with Fredericksburg banker Bill Young that the continuation of near-record rates has persuaded many would-be homebuyers to "move now even if rates are high."
Kay Patterson, executive director of the city's board of realtors, reports local sales figures show a clear pickup in March, with volume double that of the same month a year ago. "We're not complaining," seller's market -- or a real estate agent's. "In the '60s, you could do a halfway job," says Linda Worrell, the Fredericksburg developer. "Now you really have to work."
Interviews with savings and loan association executives show most of the area's home mortgage loans involve variable-rate mortgage, rather than traditional financing.Commercial construction is slow but holding its own.
But some business analyst and bankers caution that the next few months could be a testing time for those businesses that have been crimped by the recent inflation and cost squeeze.
"We're of the opinion that some of the wheat's going to be separated from the chaff," says H. Robert Edwards, a Winchester banker. "If there's no new injection of capital, you'll see some businesses here fade into the picture."
And some analysts predict that the impact of Reagan's new budget cuts, particularly in this area's heavily federal work force, may prove a bigger dampener than some locals are admitting.
Echoes Michael W. Rollins, executive director of the Fredericksburg Chamber of Commerce: "The cash flow situation is tight. The next six months are probably going to tell."
For the meantime, it's too early to predict which side will prove correct -- Washington's economists, who are forecasting another possible slump this year, or the perimeter area's business owners, who are expecting some improvement.
There's no doubt the climate in Washington's perimeter cities has blossomed visibly over the past two months, and it's not merely the coming of spring to the Shenandoah and Bay areas.
As William Simmons, an Annapolis marine supplies dealer, puts it: "Not all businessmen are doing well, not all are doing poorly. But the prospects for those who are doing poorly are definitely better."